Key takeaways:
A funding rate is a small, recurring payment between traders on opposite sides of a perpetual futures contract, keeping the contract's price in line with the real market price.
When the rate is positive, up positions pay down positions. When it's negative, down positions pay up positions.
Payments settle automatically, typically every eight hours, and only apply while a position is open.
(For more information, visit kalshi.com/perps.)
What is a funding rate?
A funding rate is a small, recurring payment exchanged between traders on opposite sides of a perpetual futures contract—those taking an up position and those taking a down position. This is also called going long and short. The rate only applies to perpetual futures, a type of contract that never expires, and its purpose is to keep the contract's price close to the spot price, the real-time market price of the asset it tracks.
This payment is often called a funding fee or a funding payment. The platform doesn't collect it. It moves directly between traders holding opposite positions.
Why does the funding rate exist?
Traditional futures contracts have an expiration date, and as that date approaches, the contract's price naturally converges with the real-time price of the underlying asset. Perpetual futures don't have that expiration date, so nothing naturally pulls the price back in line.
The funding rate takes on that job instead. When one side of the market gets crowded, that side starts paying a funding fee to the other, which pulls the contract price back toward the spot price.
How it works: positive vs. negative funding rate
Every perpetual contract has two prices worth keeping in mind: the price of the contract itself, and the real spot price of the asset it's tracking. When those two prices drift apart, the funding rate is what pulls them back together.
Positive funding rate: the contract's price is higher than the spot price. Traders in an up position pay traders in a down position.
Negative funding rate: the contract's price is lower than the spot price. Traders in a down position pay traders in an up position.
A funding rate that stays positive or negative for a while can hint at what most traders expect to happen next, since it reflects whether more traders are taking up positions or down positions. This is sometimes referred to as a read on market sentiment.
How often is funding paid?
Funding settles on a set schedule, called the funding interval, typically every eight hours, though the exact timing can vary by platform. It's automatic, and it only applies if a position is still open when a funding interval settles. On Kalshi, it's processed 3 times a day, at 12:00 AM ET, 8:00 AM ET, and 4:00 PM ET.
A simple example
Take a $1,000 position with a funding rate of 0.01%. At settlement, that works out to a $0.10 funding payment. It’s small on its own, but it repeats at every interval, so the total cost grows the longer a position stays open.
How is the funding rate calculated?
You'll see the rate calculated and displayed automatically before you place a trade. It's built from two things:
A small, steady baseline amount set by the platform. This is called the interest rate, and it rarely changes.
An amount that grows or shrinks based on the gap between the contract's price and the spot price. This is called the premium, or premium index. The bigger that gap, the bigger the premium, and the bigger the funding rate.
Rates can differ from platform to platform, and some experienced traders shift positions between exchanges to take advantage of those differences, a strategy known as funding rate arbitrage. That's an advanced move and not something you need to think about for a first trade.
Where can I check the current funding rate?
The current funding rate and a countdown to the next settlement are both shown on the trading screen before you open a position.
(For more information, visit kalshi.com/perps.)
This is not financial advice. Trading on Kalshi involves risk and may not be appropriate for all. Members risk losing their cost to enter any transaction, including fees. You should carefully consider whether trading on Kalshi is appropriate for you in light of your investment experience and financial resources. Any trading decisions you make are solely your responsibility and at your own risk. Information is provided for convenience only on an "AS IS" basis. Past performance is not necessarily indicative of future results. Kalshi is subject to U.S. regulatory oversight by the CFTC.
